Montreal — Bombardier’s drive to bolster its cash reserves is getting a lift from the booming real estate market in Canada’s biggest city.
The maker of planes and trains agreed to sell its Downsview factory in Toronto to Canada’s Public Sector Pension Investment Board for about $635m. The transaction is expected to close in the second quarter, increasing cash by more than $550m after costs, Bombardier said on Thursday as it reported earnings.
The land deal buoys CEO Alain Bellemare’s goal of fortifying Bombardier’s balance sheet, saddled with about $9bn debt from pricey development programmes for the C Series airliner and the Global 7000 business jet. Bombardier raised C$638.4m ($497m) in a share offering in March, taking advantage of 2018’s biggest stock gain among Canadian industrial companies.
The Downsview sale "further improves Bombardier’s liquidity position", Kevin Chiang, a CIBC World Markets analyst, said. "We continue to see the company execute against its long-term strategy, further de-risking its operations and balance sheet."
Underutilised asset
Bombardier will continue to operate from Downsview for as many as three years after the land sale closes, with options for two one-year extensions. Production will eventually be moved to a 15ha site at Toronto Pearson International Airport, where Bombardier plans to open a final assembly plant for its Global business jets.
The real estate shift will "allow us to monetise an underutilised asset, further streamline and optimise our business aircraft operations," Bellemare said. Bombardier said in January it had begun reviewing options for Downsview because it uses only about 10% of the 152ha site and bears the entire cost of operating a 2,100m runway.
Cowen & Co analyst Cai von Rumohr said in February Downsview could fetch as much as $1bn.
"This bolsters liquidity and allows Bombardier to rationalise production footprint, but the net proceeds look below some estimates," he said in a note to clients on Thursday.
Bellemare is about halfway through a five-year turnaround plan designed to boost profitability and cash flow. The CEO is targeting a debut in 2018 of the Global 7000 after having shored up liquidity, cut jobs and struck a partnership in which Airbus SE will take control of the C Series. Bombardier said it expected the venture to close by the end of June.
The companies originally targeted a closing in the second half of 2018.
Bombardier reported an adjusted profit of 1c a share in the first quarter.
Analysts had predicted the company would break even, according to the average of estimates compiled by Bloomberg.
The results signal "a constructive start to the year", Fadi Chamoun, an analyst at BMO Capital Markets in Toronto, said in a note to clients. He cited "encouraging signs of pick-up in demand" in business aviation.
Bombardier booked 31 orders for private jets in the quarter, two more than in the same period a year earlier.
The plane manufacturer also said it reached an agreement with American Airlines Group to sell 15 of its CRJ900 regional jets, an order with a list value of $719m before customary discounts. American also took an option to buy 15 more.
Break-even forecast
Free cash flow usage in the first quarter rose 22% to $721m, while analysts estimated $599m. Earnings before interest, taxes and special items climbed 16% to $201m. Analysts had predicted $173m.
For all of 2018, Bombardier continues to expect to break even on a cash flow basis, plus or minus $150m, according to a slide presentation posted on the company’s website.
Bombardier’s widely traded Class B shares climbed 1.8% to C$3.93 on Wednesday. The stock has surged 30% this year while Canada’s benchmark S&P/TSX Composite Index slumped 3.6%.
Bloomberg
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